Morgan Stanley predicts 2018 outlook for Tesla

Posted on
December 26, 2017
by
Matt Pressman

What will happen with Tesla is 2018? According to Investopedia, Morgan Stanley analyst Adam Jonas predicts that, "Tesla [NASDAQ: TSLA] could jump 70% on Model 3 success." Jonas forecasts that the Model 3 could generate “very strong levels of free cash flow,” de-stressing its balance sheet. Jonas writes, "During times of fast production growth (as we'd expect through the first quarter of 2018), this can pull forward significant amounts of cash, which can serve to address much of the market's concerns over near-term liquidity."

What are Morgan Stanley's predictions for Model 3 deliveries in 2018? It's reported that, "Jonas forecasts Tesla will deliver 8,000 Model 3s in Q1, 24,000 in Q2, 32,000 in Q3 and 46,000 in Q4. Morgan Stanley predicts the company’s cash burn will improve significantly in the first quarter and that it will report positive free cash flow of $600 million in Q2."

A stronger balance sheet, along with “larger numbers of the Model 3 in the hands of customers (for enjoyment) and OEMs (for tear-down) could drive a very sharp upward move in equity price,” wrote Jonas. So how will this impact Tesla stock? It's reported that, "The analyst indicated that Tesla’s shares could rise another 71% over the next 12 months to reach $561." That said, Jonas acknowledges it could be another rocky ride — much like 2017.

Above: A look back at the the 2017 Tesla stock rollercoaster ride (Source: Marketwatch)

Looking ahead, Jonas predicts, “The stock market is beginning to discount the very high likelihood that the Nevada production bottleneck is soon resolved (mid to late 1Q18)... However, we believe the market may be seriously underestimating the positive (albeit temporary) impact on Tesla working capital and cash flow.”

Jonas isn't the only analyst focused on the Model 3 production ramp in 2018. According to Marketwatch, "If Tesla shows its Model 3 production issues are a thing of the past, the stock would return to gains." In an interview with David Whiston, an analyst with Morningstar, he explains: "The year [2018] will be all about the rate of the ramp-up of the Model 3." Efraim Levy, an analyst with CFRA, agrees: "They are going to straighten it out, the question is when... until then, it’s a waiting game."

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